Panel Discussion: How have Changes to Asian Market Conditions - - PowerPoint PPT Presentation

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Jason Lapping Equity Execution Services, Asia Pacific, Director Societe Generale

Panel Discussion: How have Changes to Asian Market Conditions Affected Trading Behavior?

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Volatility

 At the height of the crisis the violent daily price moves peaked in October, this can be quantified by

looking at the Average Annualised 10 Day Historic Volatility which peaked in October at 91% ( 5.7% per day) up just under three times from 36% (equivalent to a 2.2% move per day) pre-crisis in June.

 Correlation has increased between all markets showing similar levels of volatility in Emerging and

Developed markets alike are clustered around the 48% level.

Volatility Per Country's MSCI Index 0% 20% 40% 60% 80% 100% 120% Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Japan HongKong Australia Korea Taiwan Singapore India Total 91% 36%

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Liquidity



Q2 has seen an increase of 43% nominal traded in Asia Pac but is still 3% lower than pre-crisis levels



Volumes in Emerging Markets have seen a 96% increase in the value traded between Q1 and Q2 2009, now trading 44% more per day than pre-crisis.

Source : Bloomberg & Societe General

Daily Traded Valuesin USD 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09

USD (billions)

Japan HongKong Australia Korea Taiwan Singapore India

% Change in USD Value Traded Q1 '09 vs Q2 '09 Q3 '08 vs Q2 '09 Total 43%

• 3%

Developed 26%

• 13%

Emerging 96% 44% Australia 22%

• 40%

Japan 11%

• 18%

Hong Kong 70% 17% India 89% 24% Singapore 93% 30% Korea 81% 40% Taiwan 124% 66%

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Spreads

 Spreads across the region were very quick to increase at the start of the crisis peaking in November at

23.3bps up 31% but have been slow in tighten. Spreads currently average 19.5bps up 10% from June 2008 when the averaged 17.8bps.

 The worst affected markets have been Singapore and Korea where spreads are still 33% and 9%

higher but dropped sharply in May

 Market structure is still the key determining factor impacting market spreads with the average spread

in Asia Pac being 1.6 ticks

Average Spread per MSCI Index

0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% 0.45% Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09

Japan HongKong Australia Korea Taiwan Singapore India Total

Average Spread of MSCI Index per Market Ticks

1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0

Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09

Total Japan HongKong Australia Korea Taiwan Singapore

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Theoretical Impact Costs per Market

 The chart shows the estimated cost to execute an order with a fixed nominal which in June

2008 represented 8% of ADV. The chart tracks the change in estimated Impact Cost versus the Previous Close to execute the same nominal order given the changed market conditions. Theoretical Impact Cost is a function of Volatility, Spread and Liquidity.

 The increases in Volatility & Spreads combined with lowered Liquidity saw Total Impact Cost

more than 50% but is showing real signs of recovery and stability as Volatility and Spreads fall from their highs and liquidity returns.

Theoretical Impact Cost Model per Country vs Previous Close

0.40% 0.45% 0.50% 0.55% 0.60% 0.65% 0.70% 0.75% 0.80% Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Japan HongKong Australia Korea Taiwan Singapore India

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Benchmark Selection

 The increased volatility of traded prices and unpredictability of liquidity has see the % of orders

traded as VWAP drop from 70% to just over 53% as buy side traders look to minimise price uncertainty and get trades done more actively rather than spreading and order out over the day.

Execution Strategies

70% 53% VWAP / TWAP Average With Vol / Shotfall / Iceberg / Snipe Average 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 % Nominal of Orders Executed